The U.S. Trade Deficit: How Much Does It Matter?

Economic

Summary:

President Trump has made reducing U.S. trade deficits a priority, but economists disagree over how much they matter and what to do about them.

What is a trade deficit?

A trade deficit occurs when a nation imports more than it exports. For instance, in 2024 the United States exported nearly $3.2 trillion in goods and services to the world, while it imported $4.1 trillion, leaving an overall trade deficit of more than $900 billion. The deficit in goods, at $1.2 trillion, is higher than the total deficit, since a portion of the goods deficit is offset by the surplus in services trade. Services, such as tourism, intellectual property, and finance, make up roughly one-third of exports, while major goods exported include aircraft, refined petroleum and other fuels, and transportation equipment. Meanwhile, imports are dominated by capital goods, such as computers and telecom equipment; consumer goods, such as apparel, electronic devices, and automobiles; and crude oil.

It is important to differentiate a country's overall, or global, trade deficit from its bilateral trade deficits. The United States has both a large overall deficit in its trade with the rest of the world and substantial bilateral deficits with a number of individual countries. But it is possible for a country to have bilateral deficits with certain countries, surpluses with others, and balance in its overall trade with the world. In other words, even if the United States were to “fix” its overall trade deficit, it could—and likely would—have bilateral deficits with some countries. (One way to think about this is to consider the financial situation of individual consumers, who could spend no more overall than they earn but still have “bilateral deficits” with their grocer or barber and a “bilateral surplus” with their employer.)

What causes a country's overall trade deficit?

The fundamental cause of a country's overall trade deficit is an imbalance between its savings and investment rates. As economists explain, the reason for the deficit can be boiled down to the United States as a whole spending more money than it makes. That additional spending has to, by definition, go towards foreign goods and services. Financing that spending happens in the form of either borrowing from foreign lenders or foreign investing in U.S. assets and businesses.

Economists generally see these factors as more important than trade policy in determining the overall deficit. That's because making it easier or harder to trade with specific countries tends to simply shift the trade deficit to other trading partners. Thus, economists warn against conflating bilateral trade deficits, which reflect the particular circumstances of trading relationships with specific countries, with the overall trade deficit, which reflects underlying forces in the economy.

How has the U.S. trade deficit changed over recent decades?

Today's $918.4 billion overall U.S. trade deficit, representing about 3.1 percent of gross domestic product (GDP), is down from a 2022 peak of more than $944 billion, which at the time was around 3.7 percent of GDP. The deficit has averaged $594 billion since 2000, much higher than in previous decades, when it accounted for well below 2 percent of GDP. The United States ran either a surplus or a small deficit through the 1960s and 1970s, after which a large deficit opened in the 1980s and continued to expand through the 1990s and 2000s.

The largest U.S. bilateral trade imbalance by far is with China. The United States ran a $295 billion goods deficit with China in 2024 (partially offset by a U.S. services surplus with China of $32 billion). The next largest contributor to the goods deficit, at $235 billion, is the European Union, followed by Mexico at $172 billion, Vietnam at $123 billion, and Taiwan at $73.9 billion.

The U.S. Trade Deficit: How Much Does It Matter?_1

The trade deficit with China expanded dramatically beginning in the early 2000s from an average of $34 billion in the 1990s. Some economists refer to this as the “China Shock” and attribute it to the unexpectedly rapid growth in China's exports of manufactured goods to the United States in the late 1990s and early 2000s. This happened as Beijing undertook deep economic reforms and implemented policies to subsidize production, accelerate industrialization, and boost exports. Economists also note the acceleration of Chinese export growth after the country's entry into the World Trade Organization (WTO) in 2001.

More recently, China has experienced another export surge, leading to what CFR senior fellow Brad W. Setser calls the “Second China Shock.” This second massive wave of Chinese exports is caused in part by the large increase in global demand for goods due to the COVID-19 pandemic, decreased domestic demand in China, and China's increased competitiveness in the world market due to the government's strategic investments in high growth sectors (e.g., semiconductors, clean energy, electric vehicles).

These factors help explain China's contribution to the overall U.S. trade deficit, as well as the deficit’s concentration in the manufacturing sector. U.S. manufacturing employment dropped from 31 percent of private sector employment in 1970 to 9.7 percent in 2023, a fall that economist Kyle Handley says was accelerated by Chinese competition. However, he agrees with many economists that the bulk of the reduction of labor in the manufacturing sector can be attributed to automation, productivity increases, and demand shifts from goods to services.

Why are some policymakers concerned about trade deficits?

President Trump, who campaigned for his second term on ending trade imbalances, argues that trade deficits threaten U.S. economic and national security and blames “unfair and unbalanced” trade agreements with countries like Canada, China, and Mexico for causing the growing overall deficit.

Peter Navarro, senior counselor to the president for trade and manufacturing, believes that the overall trade deficit threatens national security, in that the United States depends on foreign debt and foreign investment to finance it. Navarro has referred to the trade deficit as “a brake and bridle on both GDP growth and real wages in the American economy while encumbering the U.S. with significant foreign debt.”

In his executive order imposing reciprocal tariffs, President Trump cited large and persistent goods deficits as evidence of the lack of reciprocity in bilateral trade relationships. Trump blamed the deficits for hollowing the U.S. manufacturing base, hindering scaling of U.S. advanced manufacturing, threatening critical supply chains, and reducing the U.S. defense-industrial base to dependence on foreign adversaries.

Trump's team calculated reciprocal tariffs in addition to the standard 10 percent for every country by taking their bilateral trade deficit in goods as a share of their total exports to the United States and dividing by two. CFR President Michael Froman, a former U.S. trade representative, explains that the Trump administration's approach to calculating reciprocal tariff rates assumes that the bilateral trade deficit is “a catch-all quantitative measure of unfair trade practices, not a reflection of comparative advantage.”

Some Democratic lawmakers, labor groups, and manufacturers also criticize trade deficits on the grounds that some foreign countries—especially China—have used unfair practices such as currency manipulation, wage suppression, and government subsidies to boost their exports, while blocking U.S. imports. Brookings researchers Joshua P. Meltzer and Margaret M. Pearson identify China's overcapacity as “linked to China's increasingly mercantilist approach to trade” and suggest the United States should “rebuild a global rules-based trading system” to address China's practices, while also acknowledging the importance of a continued U.S.-China trade relationship.

The deficit's concentration in the manufacturing sector has heightened concerns among some economists over job losses and their repercussions in local communities. Research by the Economic Policy Institute suggests that the surge in Chinese imports lowered wages for non-college-educated workers and cost the United States 3.7 million jobs from 2001–2018. One study from Stanford University found that the China Shock accounted for 59.3 percent of all U.S. manufacturing job losses over a similar period (2001–2019).

Some economists worry about the consequences of large and persistent imbalances. In 2017, the Peterson Institute's Joseph Gagnon warned that the debt necessary to finance the overall trade deficit was heading toward unsustainable levels. Former Federal Reserve chair Ben Bernanke and Jared Bernstein, chair of the Council of Economic Advisors under President Biden, have argued that the large inflows of foreign capital that accompany trade deficits can lead to financial bubbles and could have contributed to the U.S. housing crash that began in 2006. Jeff Ferry from the Coalition for a Prosperous America notes that a growing trade deficit has been associated with a weak economy, as in the early 2000s, which he says is evidence of the potential for a large trade deficit to drain demand from the domestic economy and slow growth when the economy is performing under its potential.

Some economists worry about the consequences of large and persistent imbalances. The Peterson Institute's Gagnon warns that the debt necessary to finance the deficit is heading toward unsustainable levels. Former Federal Reserve chairman Ben Bernanke and Jared Bernstein, an economic advisor to Presidents Bill Clinton and Barack Obama, have argued that the large inflows of foreign capital that accompany trade deficits can lead to financial bubbles and may have contributed to the U.S. housing crash that began in 2006. Others note that a growing deficit has been associated with a weak economy, as in the early 2000s, which they say is evidence of the potential for a large deficit to drain demand from the domestic economy and slow growth when the economy is performing under its potential.

What are the arguments against focusing on the deficit?

Many economists say the overall trade deficit is not itself a problem for the U.S. economy. That's because a larger trade deficit can be the result of a stronger economy, as consumers spend and import more while higher interest rates make foreign investors more eager to place their money in the United States.

CFR Fellow Inu Manak challenges the Trump administration's assertion that “trade deficits mean you lose, and surpluses mean you win.” She says that Trump's narrow focus on trade in goods, which disregards the services surplus, is particularly unhelpful.

“It is false to suggest that the trade deficit is somehow reflective of trade barriers, and the administration's cherry-picking of the data (which excludes services where the United States has a surplus) further points to the arbitrary nature of its claims,” Manak wrote, while questioning the legal basis of Trump's tariff policies.

Some economists argue that the singular role of the U.S. economy in providing liquidity to the global economy and driving demand around the world makes a U.S. trade deficit important to global economic stability. The dollar's role as the global reserve currency and primary tool for global transactions means that many other countries rely on holding dollar reserves, creating massive demand for U.S. financial assets. This means that the United States pays little for its foreign borrowing, allowing it to finance its high consumption at low cost, which boosts global demand.

Other economists warn that increasing trade restrictions in the interest of moving toward U.S. trade surpluses could lead to lower global growth, inflation, and more economic instability among U.S. trade partners. CFR's Benn Steil and Elisabeth Harding also flag the potential reduction in real GDP growth due to protectionist trade policies.

Many economists worry that too much focus on trade deficits could lead to a revival of protectionism and a new global trade war that would make everyone worse off, especially in an era of supply chains that cross many borders. Maurice Obstfeld, senior fellow at the Peterson Institute, pushes back against the idea that job losses in manufacturing are connected to the trade deficit and further challenges the argument that tariffs will improve the trade balance or create manufacturing jobs.

Stephen J. Rose of the Center for Strategic and International Studies says government promises that restrictions on imports from China or elsewhere will revive manufacturing ignore the fact that technological progress plays a much larger role in deindustrialization than does trade. In fact, the U.S. economy began shifting away from manufacturing long before the proliferation of trade agreements in the 1990s, Rose explained.

Instead, the Peterson Institute's Mary Lovely says it is better to recognize that trade deficits are neither all good or all bad but rather involve trade-offs: the U.S. economy benefits from foreign goods and investment even as a high deficit displaces some workers and adds to the national debt.

What policy options have been proposed to reduce trade deficits?

Imposing high tariffs. President Trump has repeatedly promised to reduce trade deficits by imposing high tariffs on foreign trading partners, a key pillar of his economic platform. Commerce Secretary Howard Lutnick says using broad-based tariffs will help create “reciprocity, fairness, and respect.” Some economists say negotiating better access to the Chinese market for U.S. exporters could help reduce the bilateral deficit but warn that additional tariffs will make China less likely to grant extended access to U.S. firms.

In contrast to the Trump administration's approach, Gagnon says that data show “tariffs have little direct impact on deficits.” He says higher tariffs lead to both reduced imports and exports, as well as less total income, noting that tariffs “ultimately lead to less business innovation, slower productivity growth, and lower household living standards.”

Reducing the fiscal deficit. As an alternative to tariffs, Gagnon argues for using fiscal and exchange rate policy to reduce the trade deficit. He emphasizes “reducing the fiscal deficit and pushing down the overvalued dollar,” arguing that a weaker dollar would likely boost U.S. exports.

Boosting U.S. exports. CFR Senior Vice President and Director of Studies Shannon O'Neil emphasizes the importance of boosting U.S. exports to reduce deficits, return higher-paying jobs, and increase innovation. She argues that pulling back from trade agreements and using sweeping tariffs on imports undercut the potential for U.S. exporters to succeed because they are excluded from access to cheaper inputs. Instead of focusing on reducing imports through protectionist policies, a more effective strategy could be to increase U.S. exports.

Amending U.S. tax law. Alexander Raskolnikov, Wilbur H. Friedman professor of tax law at Columbia Law School, and CFR's Steil write that one way to address the deficit with China is by amending American tax law.

Current U.S. tax law treats foreign investors in the United States, including Chinese investors, more favorably than domestic investors. The resulting influx of foreign capital contributes to the trade deficit. Raskolnikov and Steil write: “If the U.S. tax subsidy for the import of foreign capital were eliminated, Chinese investors would have less motivation to outbid Americans for U.S. assets and, by extension, less incentive to dump goods in this country in return for dollars.”

Though it would not be a silver bullet, amending U.S. tax law and eliminating subsidies for foreign portfolio investment could moderately reduce the deficit without the downsides associated with tariffs and other protectionist measures.

CFR's Setser argues that the United States should reform its corporate tax code to limit offshoring and disincentivize profit shifting, especially in the pharmaceutical industry. Internationally, the United States and its allies should create subsidy sharing agreements in key sectors (e.g. electric vehicles and steel), expanding the market share for both U.S. and allies' firms while lowering costs.

Pressing for reforms in surplus countries. Economic reforms in surplus nations could also help. Gagnon and C. Fred Bergsten from the Peterson Institute argue that the United States should pressure countries that use foreign reserve purchases to manipulate their exchange rates by having the U.S. government counter-purchase the foreign currencies of manipulating nations. CFR's Setser says that policymakers should pressure China and other Asian countries to enact policies to raise their domestic consumption.

Cutting U.S. domestic spending and boosting the savings rate. In the domestic policy arena, boosting the U.S. savings rate could also bring down the trade deficit. As the International Monetary Fund and others have pointed out, one of the most direct ways to do that is to reduce the government budget deficit. Early in his second term, Trump established the Department of Government Efficiency (DOGE) ostensibly to reduce federal spending and lower the budget deficit. While there is widespread agreement that efficiencies could be found in spending on government operations, the reality that most federal spending goes to defense, entitlements, and interest on the debt make many question whether efforts like DOGE will make much of a dent in the overall budget deficit.

Source: CFR

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

Samantha Luan

Commodity

Economic

After a stellar year in 2024, we expect gold to continue its strong performance in 2025 as trend signals are bullish, and fundamentals are also supportive. Although the gold price has already increased by around 10% year-to-date at the time of writing, we maintain a bullish stance over the medium-to-long term and see gold as a great source of diversification, especially against an unwanted and unexpected drift lower in USD. Here are three reasons that support our positive view on gold.

Rising demand from central banks

The US dollar's share of central banks' reserves is steadily falling while holdings in gold are rising. Geopolitics is a major factor, with setbacks in globalisation due to rising trade tensions coinciding with a build-up in gold reserves. Central banks want to diversify away from USD, but as there is no credible alternative currency, they are opting for gold. A further accumulation of gold seems likely, and investors can potentially benefit by adding gold to their portfolio.

A hedge against geopolitical uncertainty

The strong performance of gold appears to be driven by its safe haven properties during periods of market turbulence and elevated geopolitical risk. Geopolitical uncertainty has remained high in recent times due to multiple regional conflicts and tariffs imposed and announced by the Trump administration.

From our historical scenario analysis covering January 2005 to February 2025, we can see strong evidence of gold being a more effective tail risk hedge than global aggregate bonds in almost all of the historical scenarios considered.

Higher return for the same amount of risk

Adding gold to a multi asset portfolio allows investors to achieve a greater level of return for the same amount of risk. We can see in the chart that a portfolio holding only bonds and equities is sub-optimal compared to a portfolio that also holds gold. The efficient frontier constructed with a fixed 10% allocation to gold lies above the efficient frontier constructed from an allocation to solely bonds and equities. When the position in gold is unconstrained, most of the points lie above the efficient frontier for an equity-bond only portfolio.

Source: HSBC

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Devin

Central Bank

Economic

Following a series of cuts to the federal funds rate in late 2024, the Federal Reserve has since maintained a target range of 4.25% to 4.50%.

Fed officials are adopting a cautious approach amid economic uncertainties, especially the impact of recent tariffs imposed by the Trump administration. They've emphasized the need for patience, suggesting that any rate changes should await clearer economic data.

However, President Trump has been vocal in urging the Fed to lower interest rates, recently stating that he may call Chair Jerome Powell and pressure him to cut rates.

With a new president in the White House, you might wonder how much influence President Trump will have over interest rates. Here's a look at the president’s role in interest rate decisions, and what it means for your bank account when the powers that be choose to raise or lower rates.

How the Fed affects interest rates

The Federal Reserve doesn't directly control interest rates set by individual financial institutions. The Federal Open Market Committee (FOMC) — the division of the Fed responsible for setting monetary policy — controls the federal funds rate. That's the short-term interest rate that depository institutions charge each other to borrow money overnight.

When the FOMC raises or lowers its target rate, banks typically follow suit. Rising rates generally make it more expensive for consumers to borrow money, but it also means they'll earn higher rates on savings accounts, certificates of deposit (CDs), and money market accounts. Conversely, lowering rates decreases short-term interest rates on credit products and deposit accounts.

Here's a look at how rates have changed since 2022:

How Much Control Does the President Have over the Fed and Interest Rates?_1

Does the president control the Fed?

U.S. presidents don't have authority over the Fed, but they do have certain powers that can impact the future of the Fed and its decisions.

The president can appoint and fire the Federal Reserve chair

The chair of the Board of Governors of the Federal Reserve System leads the Fed in working toward its key goals, including maximum employment, stable prices, and moderate long-term interest rates. Some of the Fed chair's responsibilities include reporting to Congress on the Fed's monetary policy objectives, testifying before Congress, and meeting periodically with the Treasury Secretary.

According to the Federal Reserve Act, the chair and vice chair of the board are appointed by the president but must be confirmed by the Senate. Fed chairs and vice chairs serve four-year terms and can be reappointed by the sitting president. They can also be ousted by a sitting president, although this has never happened.

The president can nominate key officials

The president also nominates the seven members of the Board of Governors who serve on the FOMC and oversee the 12 Reserve Banks. Each member is appointed for up to 14 years, which is considered a full term, after which they can't be reappointed.

“Other than nominations, the president has zero impact on Federal Reserve interest rate policy,” said Scott Fulford, a senior economist at the Consumer Financial Protection Bureau.

The president can discuss monetary policy and voice concerns

Though presidents can't control interest rates directly, they can discuss their stance on current monetary policy and its impact on rates. But this can be a touchy topic.

“Institutionally, the Federal Reserve is very protective of its independence because that independence helps it achieve its mandate,” Fulford said. “Most presidential administrations go out of their way to avoid even publicly commenting on Fed policy.”

Even so, that hasn't stopped our current president from expressing his views on the Fed and its decisions.

Trump recently posted on social media that that Powell's termination as Fed chair "cannot come fast enough" and referred to him as "a major loser."

Experts maintain that the Fed will continue to make decisions independently. Still, this outside commentary can lead to campaign promises and political actions that impact inflation and consumer prices in other ways, according to Fulford.

“For example, this administration has focused on resolving supply chain problems and reducing monopoly rent-seeking, which reduces inflation,” Fulford said. “Congress could raise taxes or spend less, which would also affect inflation.” He added that there are many policies that affect the broader cost of borrowing as well, such as reducing late fees or closing costs.

Bottom line: The Fed is designed to operate independently of politics, but public statements by the president can shape market expectations and potentially influence the Fed's policy decisions indirectly.

Source: Yahoo Finance

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Kevin Du

Central Bank

Economic

European Central Bank policymakers are becoming increasingly confident about cutting interest rates in June as inflation continues its march lower, but there is little to no appetite for a big move, six sources told Reuters.

ECB governors gathering in Washington for the International Monetary Fund and World Bank's Spring Meetings took stock of a weakening economy in the euro zone and around the world as uncertainty from tariffs imposed by U.S. President Donald Trump puts a dampener on investment.

Data out of the euro zone also showed business growth stalling this month and pay hikes expected to ease considerably.

Most importantly for inflation, the 20% tariff rate provisionally imposed by Trump on European goods had been less severe than modelled by the ECB and the risk of retaliation by the European Union had so far been averted.

That meant that many governors were now seeing growing chances of an eighth quarter-point cut at their June 4 meeting, when the ECB will update its own economic forecasts. The ECB trimmed its benchmark rate to 2.25% earlier this month.

In line with the ECB's official line, they were keeping an open mind, however, given that the decision was still more than a month away and economic policy had become unpredictable since Donald Trump's April 2 announcement.

An ECB spokesperson declined to comment.

Trump's move shook investor confidence in the U.S. economy and even its status as the world's safe haven, causing fuel prices as well as the dollar to fall against the euro.

This resulted in growing disinflationary pressure in the euro zone, assuaging concerns about high price growth becoming entrenched among even some of the more hawkish members of the ECB's Governing Council.

The outlook further out remains foggy, however, with the prospect of a more fragmented world, cheaper imports from China and stronger domestic demand from Germany's fiscal spending plans creating contrasting forces.

For this reason, too, policymakers who spoke to Reuters saw no reason at present to consider a bigger, 50-basis-point cut, which they also believed might raise unnecessary alarm among market participants.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Thomas

Commodity

Economic

For the past two years, West Texas Intermediate (WTI) crude oil prices appeared to have a solid floor at $64 per barrel. However, in early April, WTI broke through this support level, falling to a four-year low of $56 per barrel.

The recent decline in crude oil prices is driven by three primary factors:

1. Slowing Growth in China: Since 2005, there has been a notable relationship between Chinese economic growth and crude oil prices – when Chinese growth peaks, crude oil prices tend to peak about a year later. China's growth rate peaked in 2021, and crude prices followed suit, peaking in 2022.

2. Increased U.S. Production: U.S. crude oil production has surged to 13.5 million barrels per day, adding significant supply to the global market.

3. Improved Fuel Efficiency: Over the past two decades, vehicles have become increasingly fuel-efficient. On average, cars now use about 2% less fuel per unit of distance driven each year compared to the previous year. These factors have collectively made it challenging for crude oil prices to sustain a significant rally.

OPEC's Role and Historical Context

Over the past few years, the Organization of the Petroleum Exporting Countries (OPEC) has cut production by 3.5 million barrels per day, with the majority of these cuts coming from Saudi Arabia. If Saudi Arabia decides to increase production, WTI prices could face further downward pressure.

Historical precedents highlight the potential impact of such a move. In late 2014, when Saudi Arabia boosted production, oil prices dropped from $90 to as low as $25 per barrel. Similarly, in 1985, Saudi Arabia increased production from 6 to 10 million barrels per day, causing oil prices to fall from $32 to $12 per barrel – a 70% decline.

If Saudi Arabia opts to prioritize market share over price support, WTI prices could decline even further. Additionally, tariffs could slow global demand.

Source: CME Group

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Owen Li

China–U.S. Trade War

Key points:

Trump to celebrate first 100 days with a rally in Michigan
Official says Trump studying a travel ban on various countries
Trump expects trade deals within 90 days, analysts skeptical

President Donald Trump and his administration this week will highlight the accomplishments of his first 100 days in office, while looking toward the next 100 days with a focus on trade deals and peace talks, White House officials said.

After a pace of changes that have thrilled allies and stunned adversaries, including in social policy areas such as transgender rights, one official said Trump has "torpedoes" in store but did not explain what those were.

Trump has enacted sweeping changes on a wide range of U.S. domestic and foreign policy priorities since taking office on January 20. He has upended the world economic order with tariffs, slashed the federal government with job cuts and done away with diversity programs in the public and private sector.

He has also attacked academia, law firms and courts.

This week, Trump plans to travel to Michigan for a rally to commemorate the 100-day milestone. The White House intends to highlight his economic vision, ejection of undocumented immigrants, changes to foreign policy, and work by billionaire Elon Musk's Department of Government Efficiency to purge the federal bureaucracy and cut what it sees as waste.

Celebrating those moves will be part of a broad victory lap around Trump's second-term launch that the official, speaking on condition of anonymity, described to reporters as a conservative's fantasy.

"Every morning I wake up, it’s like living in a dreamscape," he said.

While Trump officials laud the speed and breadth of his efforts to remake American society, critics say Trump has trampled on the rights of citizens and non-citizens, alienated allies and threatened U.S. supremacy in the world.

The president has withheld funding from universities for what his administration considers tolerance of anti-Semitic behavior; cut back on transgender rights; and done away with diversity, equity and inclusion (DEI) programs in the federal government and with federal contractors. This has had a broad knock-on effect throughout U.S. society.

The official said there is more to come, with lots of “torpedoes under the water."

That includes more executive action, a hallmark of Trump's first 100 days, which the official said would continue like a "snowball rolling downhill." He said the administration was still working on a travel ban for citizens from multiple countries.

Courts have stymied some of Trump's actions, drawing scorn from his allies and White House rebukes that those judges are thwarting the will of the head of the executive branch and the people who elected him.

While Trump will continue to wage war with the courts and a government bureaucracy that his team views as too bloated and out of line with his world view, another official said he would put more focus in his next 100 days on trade deals and peace talks.

The president launched an all-out trade war on numerous countries this year before putting reciprocal tariffs largely on hold to allow for negotiations with individual nations. His administration hopes to secure agreements within 90 days.

Experts say that is extremely unlikely, noting that Trump has not yet secured a single deal. His rhetoric about talks, particularly with China, has often been at odds with what the other country says is true.

The president will take an extended trip abroad next month, visiting Saudi Arabia, Qatar and the United Arab Emirates, and continue to push for peace in Russia's war with Ukraine.

Trump had promised to solve that conflict on "Day One," but peace has been elusive. The president conceded on Saturday that Russian President Vladimir Putin may not want to stop the war.

Source: Reuters

Risk Warnings and Disclaimers

Add to Favorites

Manuel

Economic

Bond

Spiking trade uncertainty is compounding rising debt and sluggish growth problems facing emerging markets and developing countries, but cutting their own tariffs could provide a big boost, said Indermit Gill, the World Bank's chief economist.

Gill said global economists were rapidly lowering their growth forecasts for advanced economies and somewhat less so for developing countries, at least for now, in the wake of a tsunami of tariffs announced by U.S. President Donald Trump.

The International Monetary Fund and World Bank spring meetings this week in Washington have been dominated by worries about the economic fallout from century-high U.S. tariffs - and retaliatory ones announced by China, the European Union, Canada and others.

The IMF on Tuesday slashed its economic forecasts for the U.S., China and most countries and warned that more trade strife would further slow growth. It forecast global growth of 2.8% for 2025, half a percentage point lower than its January forecast.

The World Bank won't issue its own twice-yearly forecast until June, but Gill said a consensus of global economists showed sizeable downgrades in forecasts for growth and trade. Uncertainty indices, which were already running far higher than a decade ago, also spiked after Trump's April 2 tariff moves.

Compared to earlier shocks, including the 2008-2009 global financial crisis and the COVID-19 pandemic, the current shock is the result of government policy, which meant it could also be reversed, Gill said in an interview with Reuters on Thursday.

He said the current crisis would further depress growth in emerging markets, after steady declines from levels around 6% two decades ago, with global trade now slated to grow by just 1.5% - well below the 8% growth seen in the 2000s.

"So it's a sudden slowdown on top of a situation that wasn't particularly good," he said, noting that portfolio flows to emerging markets and foreign direct investment (FDI) were also declining, much as they did during earlier crises.

"FDI was 5% of GDP in emerging markets during good times. Now it's actually 1% and so both portfolio flows and FDI flows are down overall," he said.

NEGOTIATE TRADE DEALS

High debt levels mean that half of some 150 developing countries and emerging markets are either unable to make debt service payments or at risk of getting there, a rate that was double the level seen in 2024, and could grow further if the global economy slowed, Gill said.

"If global growth slows down, trade slows down, more countries and interest rates stay high, then you are going to get many of these countries getting into debt distress, including some that are commodity exporters," he said.

Net interest payments as a share of gross domestic product - a measure of how much countries spend to service their debts - now stand at 12% for emerging markets, compared to 7% in 2014, returning to levels last seen in the 1990s. The rates are even higher for poor countries, where debt servicing costs eat up 20% of GDP now, compared to 10% a decade ago, he said.

That means countries are spending less on education, health care and other programs that could boost development, he said.

Interest rates are also slated to stay high, given rising inflation expectations, which means countries' debt could rise further if they needed to roll over existing debt, Gill said.

He said his advice to developing countries was to quickly and urgently negotiate agreements with the U.S. to lower their own tariff rates and avert high U.S. tariffs, and to extend lower tariff rates to other countries.

Doing so now made sense, with U.S. pressure potentially easing domestic resistance. World Bank modeling showed that such moves could boost growth substantially, Gill said.